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TMI Blog1980 (8) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the manufacturer with the Central Excise Authorities and which were duly approved by them did not include the trade discount allowed to the distributing agents under the terms and conditions of the agreement with the distributing agents. 3. By the Central Excises and Salt Amendment Act, 1973, old section 4 was substituted by new section 4 in the Act. The Amending Act came into force from 1st October, 1975. The manufacturer filed fresh price lists in Part I in the new form which was prescribed after the amendment of the Act. The petitioners submitted complete price lists effective from 1st October, 1975 in the new proforma I, and informed the authorities that they were operating uniform price and discount for all their distributors, subsidiary companies and associate companies and that, therefore, the price-lists were being submitted only in Form 1. The petitioners requested that the said price-lists should be approved. 4. It has now been stated before us that though these forwarding letters refers to distributors, subsidiary companies and associate companies, there are no sales or transactions in respect of the Tariff Item in question to or with any subsidiary or associat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow this petition has now come to be filed, in which the manufacturer has challenged the action of the Assistant Collector of withdrawing the approval given to the price lists originally filed on 12th September, 1975 and by which also a further direction was given to the manufacturer that the new price list in Part IV should be filed. 8. Before we go to the contentions advanced before us on behalf of the manufacturer by Mr. Cooper, it is necessary to refer to certain provisions made in section 4 which became effective from 1st October, 1975. The relevant parts of section 4 with which we are concerned in this petition read as follows : Section 4 "Valuation of excisable goods for purposes of charging of duty of excise. (1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to value, such value shall subject to the other provisions of this section, be deemed to be- (a) the normal price thereof, that is to say, the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, where the buyer is not a related person and the price is the sole conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts, the letter being an inclusive part. Under the first part of the definition, a person who is so associated with the assessee that they have interest, directly or indirectly, in the business of each other is defined as a related person. In the latter inclusive part of the definition, a holding company, a subsidiary, a relative and a distributor of the assessee and any sub-distributor of such distributor is included in the definition of a related person. Under the Explanation to clause (c), the terms `holding company', `subsidiary company' and `relative' are given the same meanings as in the Companies Act, 1956. As already pointed out, we are not in this case concerned with either a holding company or a subsidiary company, nor are we concerned with a relative. We are also not concerned with the first part of the definition of related person We are concerned with the meaning of a distributor who is included in the definition of a related person. Now, the scheme of section 4 appears to be that where the buyer is a related person. then the normal price has to be determined in the manner provided in the third proviso to section 4(1)(a) of the Act. Under the third proviso, it is provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Parliament, as has been done by the Gujarat High Court in Cibatul Limited v. Union of India and others - 1979 E.L.T. (J 407). It may be pointed out that the Division Bench of the Gujarat High Court has in Cibatul Limited case struck down proviso (iii) to clause (a) of sub-section (1) of section 4 as ultra vires the Parliament's legislative competence under Article 246 read with Entry 84 in the Union List and Entry 54 in the State List. Referring to the provisions of section 4(1)(a) of the Act, the Gujarat High Court has pointed out that in the case of a sale to a related person, the Parliament by amending section 4 directs the authorities to ignore the fully commercial first price consisting of manufacturing costs and manufacturing profits and to take into account the second or subsequent price and it encroached upon Entry 54 in the State List, upon which it cannot legislate by virtue of the provisions of Article 246 (3) of the Constitution. In paragraph 33 of the Judgment, the Gujarat High Court has observed as follows :- "It is, therefore, clear that the concept of 'related person' brings by itself something in respect of which Parliament lacks power to legislate. 'Relate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charged his buyer-a 'related person'-a fully commercial price consisting o f manufacturing costs and manufacturing profits, he is liable to pay excise duty on the second price which his buyer 'related person'-charges his buyer-an unrelated person. The second price as observed above, is loaded with the selling costs and selling profits of the manufacturer's buyer-a 'related person'. Assessment of excise duty on selling costs and selling profits with which the assessable value is loaded partakes of Sales-tax which falls under entry 54 in the State List." 10. Mr. Cooper has thus contended both on the manner in which proviso (iii) is worked and the effect thereof that the Excise Authorities by directing the manufacturer to furnish a price list in Part IV are in effect wanting to charge excise duty not on the manufacturing costs and the manufacturing profits when the manufactured goods are sold at a commercial price to the distributors by the manufacturer but that the Excise Authorities want to charge excise duty on the price which the distributor charges to his buyer, which is bound to be loaded with post manufacturing expenses which may have to be incurred by the distributor and whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forwarding letter by the manufacturer was operating uniform price and discount "for all our distributors, subsidiary companies and associate companies". The learned Counsel had to admit that beyond looking at this letter, no further enquiry was made by the Assistant Collector and the sole foundation of the letter dated 8th October, 1975 was the fact that the distributors, subsidiary companies and associate companies fell within the definition of related person and that was why the manufacturer was directed to file a fresh price list in accordance with the third proviso in Part IV. It is obvious, therefore that when the letter dated 8th October, 1975 was issued, it was issued by the Assistant Collector merely by looking at the definition of a related person in section 4(4)(c) of the Act. As a matter of fact at one stage the learned Counsel for the Union of India expressed his inability to put any other. Matter on record in support of the view taken in the letter of 8th October, 1975 except the manufacturer's letter dated 12th September, 1975 and the definition in section 4(4)(c) of the Act. If this be the situation in which the letter dated 8th October, 1975 has been issued, it is d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stributor. We may point out that the sense in which the word 'distributor' has been used in the definition of related person has been considered by a Division Bench of the Allahabad High Court in the Hind Lamps case cited supra. In paragraph 24 of the judgment, the Division Bench has observed as follows:- "The word 'distributor' is understood in commerce as an agent or one who distributes goods to consumers." In Hind Lamps case, the Hind Lamps Company was a company registered in India, and the five shareholders of that company were: (1) Bajaj Electricals Ltd., Bombay, (2) Crompton Parkinson Ltd., London, (3) N.V. Philips, Eindhovan (Holland), (4) General Electric Co. Ltd., London, and (5) Mazda Lamp Co. Ltd., Licester, England. The last four of the companies were foreign companies. The Hind Lamps Company was engaged in the manufacture of electric lamps, fluorescent lamps and miniature lamps and the entire output was sold exclusively to five companies, namely, Bajaj Electricals Ltd., Philips India Ltd., Crompton Greaves Ltd., General Electric Co. of India Ltd., Mazda Lamps Co. Ltd. The manufacturer, Hind Lamps Co., put the brand names or trade marks like Philips, Os ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turers. 16. Though it is no doubt true that the specimen agreement filed in the present case referred to the buyer as a distributing agent, yet, as pointed out earlier, the nomenclature is not conclusive of the relationship between the manufacturer and the distributor. We have been informed that copies of such agreements are already with the Department and indeed it does appear that even the names of the distributors of the sole selling agents for which space is provided in column 8 of the price list are already with the Department. In clause 10 of this agreement, parties have made it expressly clear that this contract is a contract between the company and the distributing agent as principal to principal", though it is contended on behalf of the Union of India by Mr. Govilkar that the agreement is in substance an agreement of agency because the manufacturer exercises a certain amount of control over the distributor who is made responsible for the collection of prices of goods sold to nominees of the distributor. Now, we may at once point out that so far as the present case is concerned, we are concerned with transactions between the manufacturers and the distributors themselves a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in his capacity as a buyer. Sales to such a buyer will fall within the main part of Sec. 4(1)(a) and such a buyer cannot fall within the category of a "related person". If such a distributor does not fall within the definition of related person, it is difficult for us to uphold the action of the Department in revoking the approval of the price list. 17. In the view which we have taken of the nature of the transactions between the petitioner-company and the wholesale buyers who are described as "distributing agents" under the agreement, it is not necessary for us in this case to go into the further question as to whether any part of section 4(1)(a) of the Act can be challenged as invalid. That question would have arisen only if the distributors of the manufacturer would have fallen within the definition of a related person and then the question as to whether the manufacturer could be required to submit a price list in respect of the price at which the distributor sold wholesale to his buyer was relevant for the purposes of section 4(1)(a) read with the third clause of the proviso to that section. We are, therefore, leaving open the question about the validity of the provisions in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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